Thursday, 12 April 2012

Tax time again! For the 6th year running, these are my ratings and assessments of the best and the worst of the online tax preparation programs available to Canadian taxpayers for 2011 tax returns. As before, I've gone through all the packages certified by the Canada Revenue Agency for electronic submission of a return through NETFILE. The same ratings method has been used but the results are a bit different. Some packages are better, some just the same as last year, one is sadly worse and there's one new entrant.

Ratings Method: total score out of 45 max points on 5 factors

Privacy and security (10 points) - How well does the online tax prep company protect your data and your privacy? What do they promise and what evidence is there of their capability to deliver? As I said last year, it is unfortunately still the case that this is the most uncertain area of the ratings - my numbers could be fairly wide of the mark - since it is hard to get much tangible proof of the reality vs the promises made, even compared to the minimal promises as are publicly made on the websites. Only one company (Acetax) actually claims to have been audited by an external party. CRA does not do anything, as they woefully admit in the disclaimer on the webpage with the list of packages, to check up on the companies and how they handle our data, which I think is shocking and unacceptable, given that a lot of people likely believe that NetFile certification somehow gives assurance of security protection.

Flow, readability and layout (10 points) - How does the appearance and the flow of the program guide the taxpayer through all the steps, ensuring that everything is entered correctly in the right places? Is it easy to go back and forth, to review results and check one's work or make changes? The programs vary enormously on this factor, from simple on-screen versions of the paper forms, which merely do the arithmetic correctly and transfer amounts (or are supposed to!) between forms, to sophisticated interview processes akin to interaction with an accountant, asking questions to uncover all income and deductions and credits.

Help (10 points) - How much access to explanations about tax rules is provided and how well placed is it? One of my on-going pet peeve test items is the infamous T1135 Foreign Income Verification Statement which a taxpayer with foreign property over $100,000 in cost must fill in, sign and send in to CRA. Does the program tell you, ideally at the point when you have to tick that box, that it is not required for foreign holdings within registered accounts like RRSPs? Some do not say so and others do not say that the T1135, if required, cannot be done online and that it must be submitted by mail on paper. Failure to send in a T1135 can be very painful.

Responsiveness (5 points) - How fast is the online application at saving data and refreshing the screen? slow = frustration! Some of the programs are a lot more reliably responsive, an important factor if you are in the final throes of meeting the April 30th deadline.

Accuracy (10 points) - How good a job does the program do at calculating your taxes and helping you legally pay the least amount? For those who think that NetFile certification means the programs will all come up with the same answer (as I believed myself before starting to look at all these packages a few years ago), it is time to recognize the reality. As I commented two years ago, CRA's certification only means the program is correctly including all the revenues. the programs differ enormously in their ability to automatically detect and claim all deductions and credits to which you are entitled. As a result, in my own case with all the packages my total income on line 150 was identical but balance owing on line 485 showed different amounts, anywhere from a few dollars to a few thousand dollars apart. In the cases where I had thousands less to pay this was the result of incorrect eligibility for deductions that the programs did not prevent. It is only because I used them all that I got to learn what should be the correct result. Some are much better than others at preventing incorrect input but it is always worth the time to use a couple of the programs to enter your data and compare the results. They all allow you to see the bottom line in much detail, if not actually to print or submit the completed return. The very best package (TaxChopper) at using deductions and credits for an individual and/or shared amongst family members is almost like having a skilled accountant doing your taxes - it is essentially an expert system for income tax. Three examples tested the packages' ability to optimize using age amounts and pension splitting, tuition and education transfers, foreign tax credits with inter-provincial residence thrown in for the trickiest rule. In no case did any other package beat TaxChopper - it always found deductions, transfers and credits to use and end up with the lowest taxes to pay. The difference was about $250 on a total refund of around $6000 for the fictional test family. Optimization can be very worthwhile.

#6 AceTax - 29 points
"Just fine for those who need minimal help and are familiar with tax forms"

#7 (tie) WebTax4U - 26 points
"For those who know where things go and are familiar with tax forms"

#7 (tie) EachTax - 26 points
"Looks like the forms; for those who know what forms to use. Much improved responsiveness."

#9 Taxnic - 24 points
"OK package if you know what forms to fill and credits to claim. What CRA would give us if they created a NetFile package – no error checking or optimization, just the forms and correct transfer of amounts from box to box and form to form."

Because I use AceTax and they don't have the Save and Continue buttons anymore. Just a clean and nice Next and Previous buttons that saves automatically when moving between forms. Also, I believe that AceTax has the best user interface of all these tax packages, it just looks cool. It is also the most user friendly tax software.

Thanks Mark for pointing out the Acetax change. I had neglected to note the disappearance of the Continue button, which is an improvement. The Save button is still there though, within forms. ( I noticed that one could put a number into any data entry box and if one clicks on a form in the left sidebar list, Acetax automatically saves whatever data has been changed. That's probably ok since it does it consistently but initially someone might get it wrong since there is no warning.) And yes, I do use the previous year's spreadsheet as the base for the following year to see what has changed or not. Should have updated this one. The post comment table for Acetax has now been changed. Thanks for your keen eyes!

TaxFreeWay is missing from your list. I switched to it when income splitting came in. It was the only one that worked properly at that time. It costs about $10.00 an does the job. Maybe not as polished as some, but it should be included in any review.

There is another free program called StudioTax which also works just fine if you like a form entry type.